Berlusconi Ally Says Govt Must Cut Taxes, End Austerity

ROME — The next Italian government must cut taxes and shun German-inspired austerity policies which have dragged the country into recession, the main economics spokesman in Silvio Berlusconi's center-right party said.

Renato Brunetta, an economics professor and former minister of public administration, said a center-right government should rely on steps such as structural reforms and privatizations to tackle Italy's debt mountain.

Brunetta has been one of the leading critics of Prime Minister Mario Monti in the People of Freedom (PDL) party and a chief influence behind Berlusconi's attacks on his "Germano-centric" technocrat government.

"Putting our heads down and carrying on like this with a blood, sweat and tears economic policy designed by [German Chancellor] Angela Merkel doesn't help anyone," he told Reuters. "It's time to finish with it, it's a failed policy."

With elections due in February, ministers and officials including Monti have declared that any future Italian government would be bound to stick to the pledges his government has made to cut the budget deficit and rein in public finances.

But to a striking extent, Brunetta's comments echo his counterpart in the center-left Democratic Party (PD), Stefano Fassina, and underline broad agreement in large areas of Italian politics that the austerity policies of Monti's technocrat government must be modified.

Brunetta said Monti, appointed last year to stem a widening financial crisis, had essentially continued the tight budget policies already followed by Berlusconi's last government, which passed two emergency budgets worth a total 60 billion euros.

But he said Monti, who added a further 20 billion euros of tax hikes and spending cuts, had made three big mistakes which had deepened a recession expected to see the economy shrink by 2.4 percent this year.

The first was extending the so-called IMU property tax to cover principal residences, a deeply hated measure in a country where more than 80 percent of people live in homes they own.

In addition, he said Monti had botched a pension reform which put back the retirement age but left thousands of early retirees with neither a job nor pension.

Finally, Brunetta said complex labour reform designed to ease hiring and firing rules had satisfied no one and added complications that made it harder for companies to hire new staff or to lay workers off.

"Monti did all this because he was forced to by German policies and in doing so, he delivered a hammer blow to the economy," he said.

"NEVER AGAIN"

The center-right's attitude towards Monti, widely credited outside Italy as the main guarantee of stability, is an ambiguous one, and last year's crisis, which saw Berlusconi's government forced to step down, has not been forgotten.

"He's reassuring but for whom?" said Brunetta. "For Italians? He's reassuring for the banks, for financial markets, for the interests of northern Europe against the south."

The PDL effectively brought down Monti's government by withholding support in parliament but Berlusconi has offered to step down as candidate in the election due in February if Monti agrees to stand as leader of a "moderate" movement.

Berlusconi currently trails in the opinion polls but whatever happens in the election, Brunetta said the center-right would not permit a repeat of Monti's technocrat government, which depended on the support of both main parties.

"Never, never. If it were to happen, we'd have elections straight away," he said. "There should never be a technocrat government again, there should never be this doubt again."

The much-hated IMU tax on property values, which Berlusconi has promised to scrap, symbolizes what many see as an attack on the middle classes for the benefit of foreign banks and other European governments.

"IMU on principal residences is a mistake. It's an unjust tax which we will abolish as soon as we can," Brunetta said.

He said a center-right government would tackle a public debt set to top 126 percent of gross domestic product this year, with a mix of structural reforms to improve competitiveness, privatisations and asset sales and an attack on waste.

"It would certainly reduce fiscal pressure, it would certainly pass a different pension reform and a different labor reform from the ones that were passed," he said.

Whether financial markets would make it possible for a Berlusconi-led government to return is another question.

At the mere announcement that he was running last week, Italian bond yields jumped and the main indicator of market confidence, the spread between Italian yields and their safer German counterparts, widened sharply.

However, Brunetta argued that Italy's domestic political turbulence has had far less impact on financial markets than outside factors such as European Central Bank interventions and perceived weaknesses in the overall architecture of the euro.

"At the end of 2011, Italy was not at the edge of the abyss, it was in the middle of a massive speculative attack, which then became a political crisis," he said.